You know all those people who work for FedEx? A court has ruled that they work for FedEx!

FedEx, like so many other companies, has been shifting costs onto employees by pretending they are not employees. This is called “misclassification” and this ruling matters.

FedEx has been pretending that their employees are “independent contractors” even though they are FedEx employees. Just in time for Labor Day, the 9th U.S. Circuit Court of Appeals ruled that FedEx’s employees (in California and Oregon, and likely many states with similar employee-protection laws) are FedEx’s employees, ruling that, “… we hold that plaintiffs are employees as a matter of law.”

This ruling matters because actual employees have certain rights and benefits that contractors do not have. These rights include,

Overtime pay.

Employer contributions to Social Security and Medicare. (Contractors pay double.)

Can collect unemployment benefits when laid off.

Sick pay and family Leave.

Workers compensation coverage.

This court ruling is similar to the recent McDonalds ruling by the National Labor Relations Board (NLRB) that McDonalds’ employees are employed by McDonalds. This ruling is likely to have wide ramifications for companies that do things like,

Package delivery

Trucking

Home care services

Construction

Some professional services

Labor Standards Set Up By We the People

In the US We the People used to have a say. So we said we want certain labor standards. (As well as environmental standards, food inspections, etc.)

Companies have been trying to get around the standards that We the People set up for working conditions in our democracy. To get around labor standards some companies have been playing this game of pretending their employees are not their employees. They set up various schemes to get around democracy’s laws and labor standards about treating employees as employees. They call them “temporary employees” or “contractors” and use “franchises” or “contracting companies” to make it look like their employees are not their employees. Sometimes they even set up shell companies that they contract with, and those shell companies exist solely to provide them with employees that are not called employees.

When these companies are able to get around democracy’s rules governing their relationship with their employees — and the environment, customers, etc. — a few people at the top of the companies pocket the difference.

Schemes Create An Unlevel Playing Field

You may have heard of Gresham’s law, which notes that “bad money drives out good money.” This applies in situations where companies can gain a competitive advantage by cheating. Cheating (putting a thumb on the scale, bribing politicians, setting up one-way trade agreements, fraud, whatever…) brings them lower costs so companies that don’t cheat have higher costs. This drives the honest companies out of business. So when some companies can set up schemes to get around the rules We the People have set up, there is not a level playing field and honest companies have a hard time competing and are eventually driven from the playing field.

Getting around labor standards gives companies that come up with these schemes a competitive advantage. These schemes such as FedEx has been using to get around employment rules harms honest companies that try to follow the rules that were laid down by We the People.

Companies that misclassify employees as not-employees avoid paying their share of Social Security and Medicare, avoid paying overtime, and the rest. Another way these schemes affect honest companies is with things like workers compensation insurance. Companies pay into a workers compensation insurance pool for their employees. Companies that use schemes to misclassify employees as something other than employees don’t pay into these pools. But workers that get injured can still get compensation. The result is that the workers compensation insurance costs more to the companies that pay in. (According to information from a call on this subject, held by the Economics Policy Institute, this averages 2% of payroll.)

Schemes Create Inequality

Another effect of companies getting away with various schemes that get them around the rules (or borders) of democracy is that it drives inequality. In a democracy We the People have a say, and we said we want good pay with good benefits, and we say that companies — in order to exist at all — have to follow certain rules. Those rules include providing good products with good support and good warranties, and providing good jobs with good pay and benefits, and protecting the environment. While our democracy was strong these rules created a prosperous nation, with a strong middle class. It was a prosperous market that the world wanted to sell to.

One of the ways this democracy created prosperity was with rules that enabled working people to organize into unions so they could have the power to compete with the aggregated power of corporations.

Unfortunately those with great wealth have been able to come up with various schemes to get around the rules that We the People had laid out, which created the prosperity we used to enjoy. They have been able to rig the rules in ways that drive that prosperity up to fewer and fewer people — also known as “rising inequality.”

Working family incomes haven’t gone up in the 21st century. Inequality reaches new extremes. Corporate profits are reaping a record portion of the nation’s income, while worker wages wallow at record lows. Three-fourths of Americans fear their children will fare less well than they have.

This Labor Day, we should do more than celebrate workers – we should understand how vital reviving worker unions is to rebuilding a broad middle class.

The raging debate on inequality and its remedies often omits discussion of unions. Inequality is blamed on globalization and technology that have transformed our workforce. Remedies focus on better education and more training, with liberals supporting fair taxes to help pay the cost.

[. . .] The decline of unions is indisputably at the center of America’s growing inequality and hallowed-out middle class. But what is also clear is that reviving shared prosperity and rebuilding the middle class isn’t likely to occur without reviving the ability of workers to organize and bargain collectively.

Campaign for america’s Future has released a report, “Inequality: Rebuilding the Middle Class Requires Reviving Strong Unions.” The introduction explains that, “Government policy helped strengthen the hand of workers and build the middle class coming out of World War II, and today government must once more become an ally of working people. The effort to make that happen will meet fierce resistance, but the report shows that the first steps have begun.”

From The Ruling

The court’s ruling said of these FedEx employees, “The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards. FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent.”

The ruling also states, “Abraham Lincoln reportedly asked, “If you call a dog’s tail a leg, how many legs does a dog have?” His answer was, “Four. Calling a dog’s tail a leg does not make it a leg.” “

In other words, just like how McDonalds’ employees are McDonalds’ employees, FedEx’s employees are FedEx’s employees. Maybe democracy — and common sense — have a chance after all.

About Dave Johnson

Dave has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.